Full Breakdown
Indonesia Pushes Back Against Morgan Stanley Capital International (MSCI) Downgrade Amid Market Turmoil and Haze Crisis
By Drooid · · How we work
Prabowo’s Cabinet Address on MSCI Proposal (Oct 21)
During a televised plenary cabinet meeting at the Presidential Palace in Jakarta on Oct 21, President Prabowo Subianto told ministers that Indonesia would not be “intimidated” by the U.S.–based index provider MSCI.
Background: MSCI’s Reclassification Plan and Market Impact
On Oct 15, MSCI announced a formal consultation on whether to move Indonesia from the “emerging-market” category to a “standalone” classification. The announcement triggered a record two-day sell-off in Indonesian equities, wiping out roughly US$82 billion in market value before a partial rebound on Oct 20. MSCI said the final decision will be made by June 30 2027.
Data & Statistics
- Market loss: US$82 billion vs. US$85 billion.
- Index decline: Composite Stock Price Index (IHSG) fell 11.6 % on Oct 16 and a further 3.64 % later in the week, closing at 4,996.00, the lowest level in six years.
- Benchmark weighting: Stocks with tightly held ownership represent about 18 % of the MSCI Indonesia index.
- Haze-related investigations: Singapore’s Minister Grace Fu identified fires on land owned by seven companies; Singapore’s NEA later added three more firms under its Transboundary Haze Pollution Act.
- Corporate links to fires: A joint report on Oct 5 linked at least one Malaysian firm and four concessions with Singapore-based investors to hotspot areas.
Official Statements & Responses
- He also described deliberate burning as “environmental terrorism” and a “crime against humanity,” promising to revoke permits of violators.
- MSCI: In an emailed response, the firm said its decisions follow “transparent and rules-based methodologies” and that it will continue to monitor developments and engage with market participants and authorities.
- Financial Services Authority (OJK) Chair Friderica Widyasari Dewi: She clarified that Prabowo’s remarks were not intended as a challenge to MSCI but as support for ongoing capital-market reforms aimed at improving credibility, liquidity and transparency.
Criticism & Opposition
Friderica emphasized that the government’s reforms are driven by internal objectives rather than external pressure from any specific index provider.
Conflicting Reports & Gaps
- Market-value loss: Straitstimes reported a loss of US$82 billion, while Kompas cited US$85 billion. Both figures refer to the same two-day sell-off but differ in magnitude.
- Scope of corporate responsibility: Prabowo called for revoking permits of companies proven to breach rules, yet no specific firms have been publicly named, and Singapore’s investigations have identified only a subset of alleged polluters. The full list of responsible entities remains undisclosed.
Verbatim Quotes
- “The MSCI ... intended to intimidate us,” — Indonesian President Prabowo
- “If necessary, we will carry out massive austerity. We will be even more frugal,” — Indonesian President Prabowo
- “Therefore, we continue our reforms. The more credible, liquid, and transparent we are, the more we will become a home for long-term investment for the Indonesian people,” — Friderica
- “Essentially, we are making improvements, not because of any particular global index provider, but because since January, following the President's directives, we have been making necessary improvements regarding integrity, transparency, and liquidity,” — Friderica
What’s Next
MSCI has scheduled its final determination on Indonesia’s market classification for June 30 2027. The Indonesian government has indicated willingness to implement “large-scale austerity measures” and to continue reforms of share-ownership disclosure and trading-practice oversight. Further regulatory actions against firms linked to haze fires are expected as police and prosecutors pursue investigations.
